HOUSING MARKET MAKING STRIDES

Foreclosures and defaults dropping, and new law may help keep them low

Housing distress in San Diego County has eased considerably during the past two years. Will a new state law suppress it for good?

Mortgage defaults in the county are at their lowest level in nearly 7½ years, while foreclosures are hovering near a six-year low, based on the latest numbers from real estate tracker DataQuick.

Tuesday’s report covers all of January, the first full month since some new homeowner protections went into effect statewide.

One part of the California Homeowner Bill of Rights prevents banks from starting the foreclosure process while a loan modification or short sale is in progress, a practice called dual tracking. The provision is meant to help borrowers who are making genuine strides toward saving their homes, only to learn that their bank decided to foreclose on their property.

Brian Ruhl, a San Diego real estate agent who specializes in short sales, said banks such as Wells Fargo and JPMorgan Chase began paying attention to the dual-tracking rule even before it officially took effect. He found that starting in mid-2012, they stopped issuing a notice of default if a homeowner was undergoing a short sale or loan modification.

Notices of default, which signal the start of the foreclosure process, saw a dramatic fall in January throughout the county. A total of 310 were filed, a 65 percent drop from December and a 78 percent dip from the same month a year ago.

Filing activity fell among all the major loan servicers, the companies to which borrowers send their mortgage payments, DataQuick figures show. Bank of America filed 12 notices of default in January, down from 266 — a 96 percent drop — the same time a year ago. Bank of America and other major lenders don’t routinely address third-party data.

Foreclosures rose slightly in January but are still near a six-year low set in December, according to DataQuick. The county recorded 381 repossessions, up 7 percent from December but still down 48 percent year-over-year.

Another factor that has kept home repossessions and mortgage defaults suppressed is the rise of short sales, considered more favorable than foreclosures because they put less of a dent on credit reports, usually cost less for everyone involved and give borrowers a quicker chance at homeownership again.

Short sales — lender-approved deals that allow homeowners to sell their properties for less than what they still owe — made up more than one-fifth of the total housing market in San Diego County, according to an estimate from DataQuick.

Major banks went full steam with such deals after entering a $25 billion deal with 49 states to settle allegations of mortgage abuse. A majority of consumer help provided through the settlement has been short sales.